The USD/JPY pair traded with a mild negative bias on Friday and was seen hovering near daily lows, around the 108.75 region heading into the European session. Having struggled to find acceptance above the 109.00 mark, the pair witnessed some selling on the last day of the week and eroded a part of the overnight gains to over two-week tops. A generally softer risk tone drove some haven flows towards the Japanese yen, which, in turn, was seen as a key factor exerting some pressure on the USD/JPY pair.
That said, concerns that the recent surge in COVID-19 cases could hinder Japan's fragile economic recovery acted as a headwind for the JPY. This, along with the BoJ's forecast that inflation will not reach the 2% target through early 2023, might help limit the downside for the USD/JPY pair amid a modest US dollar strength. Meanwhile, a subdued action around the US fixed income market did little to lend any support to the USD. This comes amid the Fed's reassurance that it will keep interest rates low for a longer period might hold traders from placing any bullish bets around the USD, suggesting that the USD/JPY pair could remain confined in a range.
